Reasons to be Cautious on Student Lending


This whacked-out, oft-censored, and certain-Canadian-export-loving Senior Research Analyst constantly heard from his parents in his formative years that having a higher education would translate into success later in life. The message was personally resonant and as a parent, such a message was communicated almost as a mantra to his scion. This “American Dream” message had particular meaning – the College Board has estimated that the lifetime earnings for those with a bachelor’s degree are 66 percent higher than those individuals with a high school diploma.

Today, higher education appears to be taking on a new meaning that is being precipitated by the rising cost of tuition, fees, room and board over the last decade. Such escalating costs have prompted higher-education aspirants to seek out financial support in the form of student loans. According to the Chronicle of Higher Education, approximately 20 million Americans attend colleges or universities each year and close to 12 million Americans – or 60 percent of the total – borrow annually to cover their academic costs.

Today, the amount of student-loan indebtedness is staggering.  According to reports from the Federal Reserve Bank of New York (FRBNY) and the Consumer Financial Protection Bureau, there is respectively between $902 billion and $1 trillion in total outstanding student loan debt in the United States, which is second only to total home mortgage loan indebtedness and individually outpaces both total non-revolving credit dollar volume and home equity credit dollar volume.  As of October 2012, the average student loan debt outstanding was $26,600, which is 1.7 times higher than it was in 2005.  Further, the lion’s share of this indebtedness is being borne by individuals under 30 years of age that hold 32 percent of the student loan debt outstanding and individuals between 30 and 39 years of age that hold 34 percent of the debt.

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